Accounting

Often referred to as the language of business; accounting is more a means of keeping score in a common format.

Accounting involves recording business transactions in financial terms and reporting that information to business owners and other interested parties.

Business transactions such as:

• Making a sale
• Buying goods and services
• Paying Staff
• Borrowing money
• Paying loans back
• Investing in assets (machinery, buildings, vehicles etc)
• Paying tax

are described in accounting for the impact that they have and evaluated to a common base known as money.

By common agreement in the UK we accept that the money base is £ sterling (it could be any other unit of measure if we all agreed and recognised it).

The business score in accounting is usually presented in three documents, each in a particular format and showing financial information of different significance:

Accounts are widely used by many groups and for many reasons; you may be able to add to these lists.

Users of accounts

• Owners / Shareholders – to value their investments
• Managers – assist in control and decision making
• HM Revenue & Customs – agreeing tax liability
• HM Revenue & Customs – agreeing VAT liability
• Central statistical office – official statistics
• Investors – to oversee and/or value their investments
• Banks – to oversee and/or value their investments and loans
• Customers – can I rely on my supplier?
• Suppliers – will I be paid?
• Auditors – the figures to be audited
• General public / Journalists – public interest issues
• Trades Unions – negotiations / industry data
• Employees – information on what is happening to the business they work for?
• Potential employees – safe to work for?
• Pension funds / Fund managers – for potential investment
• Lobby Groups – to review and further their issues
• Authors of books on the subject – for materials and examples

Uses of accounts

• Showing the financial situation of the entity
• Demonstration of compliance to the law
• Reporting performance
• Managing performance
• Valuing an entity
• Demonstrating resources available
• Demonstrating capacity to do things
• Comparisons and benchmarking
• Support for raising finance
• Demonstration of probity
• Supporting tax computations
• Keeping investors (including banks) and potential investors informed